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Comment by otterley | Hacker News Reader

Very few people can afford to pay for homes in all cash up front. Plus, financing a home is usually a great idea, since they tend to be appreciating assets (as long as the interest rate is lower than the rate of appreciation).

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There’s a strong historical case to be made that houses only cost what they do because they receive government insured mortgages and preferential tax treatment. The costs rise to consume the available funding.

The reason owner-occupied financing gets that tax benefit is to put owner-occupant buyers on a (more) equal footing with a commercial borrower as commercial interest is deductible as a business expense against income whether it’s startup costs, financing a factory, an airplane, or a rental house.

Perhaps interest should not be tax deductible. It's a huge subsidy to the banks and finance industry, which does not need any assistance, and has routinely caused destructive economic recessions.

I don't follow. How does a tax deduction for paid interest subsidize banks?

It's a subsidy by proxy. The government forgoes tax revenue on money that goes to interest payments. People deliberately get loans for the interest deduction.

If you earned $100,000 in a year but paid $5,000 in mortgage interest, government will not collect taxes on that $5,000, because you gave it to the bank. The bank gets money, but government doesn't: makes little difference if you gave it to the government first (who then handed it on to a bank), or you gave it directly to the bank.

That doesn't make sense to me. Given an interest rate and a financed amount, I have to pay the same amount of mortgage interest to the bank whether it's tax deductible or not.

If financing a home is such an obviously great deal then why are mortgage lenders okay issuing debt with very long fixed interest rates when they receive nothing from the appreciation of the underlying assets?

Because they’re backstopped by the federal government (Fannie and Freddie) and thus the income streams are practically risk free, yet still yield a much higher interest rate than T-bills.

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